An Optimal Mechanism to Fund the Development of Vaccines Against Emerging Epidemics

Christopher Snyder, Kendall Hoyt and Dimitrios Gouglas

No 30619, NBER Working Papers from National Bureau of Economic Research, Inc

Abstract: We derive the optimal funding mechanism to incentivize development and production of vaccines against diseases with epidemic potential. In the model, suppliers' costs are private information and investments are noncontractible, precluding cost-reimbursement contracts, requiring fixed-price contracts conditioned on delivery of a successful product. The high failure risk for individual vaccines calls for incentivizing multiple entrants, accomplished by the optimal mechanism, a (w+1)-price reverse Vickrey auction with reserve. Our analysis determines the optimal number of entrants and required funding level. Based on a distribution of supplier costs estimated from survey data, we simulate the optimal mechanism's performance in scenarios ranging from a small outbreak, causing harm in the millions of dollars, to the Covid-19 pandemic, causing harm in the trillions. We assess which mechanism features contribute most to its optimality.

JEL-codes: D47 H44 I18 L65 O31 (search for similar items in EconPapers)
Date: 2022-11
New Economics Papers: this item is included in nep-cta, nep-des and nep-hea
Note: DEV EH IO LE PR
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Citations: View citations in EconPapers (2)

Published as Christopher M. Snyder & Kendall Hoyt & Dimitrios Gouglas, 2023. "An optimal mechanism to fund the development of vaccines against emerging epidemics," Journal of Health Economics, vol 91.

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Journal Article: An optimal mechanism to fund the development of vaccines against emerging epidemics (2023)
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